BAT to acquire Reynolds for $49bn


Financier Worldwide Magazine

March 2017 Issue

March 2017 Issue

In a deal that creates an industry leader focusing on innovation and brand building, British American Tobacco plc. (BAT) and Reynolds American Inc. (Reynolds) announced a $49bn merger.

Under the terms of the agreement, which will see BAT acquire the 57.8 percent of Reynolds it does not already own, Reynolds’ shareholders will receive $29.44 in cash for each share of Reynolds common stock they own and a number of BAT American depositary shares representing 0.5260 of a BAT ordinary share.

The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds. Additionally, a $25bn acquisition facility has been entered into with a syndicate of banks to provide financing certainty.

Employing more than 50,000 people worldwide, BAT is a global tobacco group with brands sold in more than 200 markets around the world. Reynolds, in comparison, is the second-largest US tobacco company, with production facilities in North Carolina and Tennessee.

Once complete, the new entity will be a stronger, truly global tobacco company with direct access to the US market and a strong portfolio of iconic brands and next-generation products (NGP), including Newport, Kent, Pall Mall, Dunhill, Lucky Strike and Rothmans.

“We are very pleased to have reached agreement with the board of Reynolds American as we believe that the combination of our two great companies has a very compelling strategic and financial logic that will provide a lasting benefit to shareholders, employees and all other stakeholders,” said Nicandro Durante, British American Tobacco’s chief executive. “This transaction will not only create a truly global business with a world-class portfolio of tobacco and NGP, but will also benefit from the highly talented and experienced employees in both organisations. We believe that this will drive long-term sustainable profit growth for the benefit of all shareholders.”

As a company with a strong track record of successfully integrating acquisitions, BAT has made clear that it is committed to Reynolds American’s US workforce and manufacturing facilities. The companies’ combined next-generation product development and R&D capabilities will create an innovative pipeline of vapour and tobacco-heating products, delivering both an array of new product options for adult tobacco consumers, as well as diversified sources of profit growth opportunities for investors.

“We look forward to bringing together the two companies’ highly complementary cultures and shared commitment to innovation and transformation in our industry,” said Debra A. Crew, Reynolds American’s president and chief executive. “British American Tobacco is the best partner for Reynolds American’s next phase of growth, and together the two companies will create the leading portfolio of tobacco and NGP for adult tobacco consumers.”

Weil, Gotshal & Manges LLP and Moore & Van Allen PLLC are acting as legal counsel, and Goldman, Sachs & Co. is acting as financial adviser to the Reynolds American transaction committee. Jones Day is acting as legal counsel and J.P. Morgan Securities LLC and Lazard are acting as financial advisers to Reynolds American Inc.

The transaction, while unanimously approved by the Transaction Committee of independent Reynolds directors established to evaluate the BAT offer and by the boards of Reynolds and BAT, is subject to shareholder approval from both Reynolds American and BAT shareholders, as well as regulatory approvals and other customary closing conditions. The transaction is expected to close in the third quarter of 2017.

Lionel L. Nowell, III, lead independent director of Reynolds American’s board of directors, concluded: “This is an agreement that offers a compelling premium to shareholders, as well as continued ownership in a company that is well-positioned for long-term success.”

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Fraser Tennant

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